2019 Regular Session: Week 10 Recap

The first line of last week’s Capitol Notes remains the same for this week’s edition: “The calendar giveth, and the calendar taketh away.” But this time, the “calendar” in question is not the one that determines when the Legislature is or will be in session, but rather the one that controls which bills get on the Senate floor.

The Senate on Tuesday was expected to take up the State General Fund budget for FY 2020. If – and that was a big “if” – there was time, the Senate was expected to consider taking up a slate of non-budget bills once the budget had been approved. But when senators arrived in the chamber, Senate leaders decided to propose the calendar full of non-budget bills first. And near the end of that 19-bill calendar were the final three – candidly, the most important three – bills on ABA’s radar for the remainder of the session. Even more impressive, in the span of 15 minutes, all three of these bills had passed the Senate.

The first bill was House Bill 420, sponsored by Rep. Kyle South (R-Fayette) and handled on the Senate floor by Sen. Rodger Smitherman (D-Birmingham). This bill allows financial institutions and the Department of Revenue to voluntarily enter into data-sharing agreements to minimize the number of garnishment notices for delinquent taxpayers sent by the department and received by financial institutions.

The second bill was House Bill 304, sponsored by Rep. Merika Coleman (D-Birmingham) and handled on the Senate floor by Sen. Steve Livingston (R-Scottsboro), who handled the bill in lieu of the Senate sponsor, Sen. Shay Shelnutt (R-Trussville), since Sen. Shelnutt’s daughter graduated high school on Tuesday afternoon. This bill allows certified real estate appraisers to perform real estate evaluations where permitted by federal law (currently, appraisers are allowed to only perform appraisals).

The third bill was House Bill 419, sponsored by Rep. Kyle South (R-Fayette) and handled by Sen. Livingston (once again in place of Sen. Shelnutt). This is the most important bill on ABA’s legislative agenda. Known as the Financial Institution Excise Tax Reform Act, the bill clarifies and modernizes every facet of the state’s FIET statutes, making it easier for bankers, tax practitioners, and the Department of Revenue to understand and enforce the law.

All three bills passed the Senate unanimously. And all three await Governor Kay Ivey’s signature. ABA has already reached out to members of the Ivey Administration summarizing these bills and encouraging her to quickly sign each of them into law.

Speaking of her signature, another bill ABA worked on, Senate Bill 106, has now been signed into law. Sponsored by Sen. Andrew Jones (R-Centre), this bill allows members of the U.S. Armed Forces to contract with a financial institution for a loan or bank account, regardless of age. Rep. Andy Whitt (R-Huntsville) managed the bill on the House floor. ABA was involved in drafting an important Senate amendment to the bill and supported this bill’s final passage.

As always, Capitol Notes provides readers with a brief summary of legislation that might impact Alabama’s banking industry. Those summaries are as follows:

House Bill 101 by Rep. Kerry Rich (R-Albertville) and Senate Bill 54 by Sen. Shay Shelnutt (R-Trussville) adopts the National Association of Insurance Commissioners’ Insurance Data Security Law. Federal data security regulations already apply to financial institutions, including to those institutions’ insurance-related subsidiaries. To ensure that this legislation did not also apply to those entities, the Association, working with the American Bankers Association, drafted an amendment exempting financial institutions from the provisions of this bill. The amendment was unanimously adopted in both the House and Senate versions of the bill. Senate Bill 54 was signed into law on April 25. The Association’s amendment, which was added in Senate committee, was included in the final version of the bill.

House Bill 133 by Rep. Jim Hill (R-Pell City) would require state taxes or fees not already distributed to the Education Trust Fund or State General Fund to be deposited in the State General Fund unless those taxes or fees are constitutionally required to be distributed to a specific fund for a specific purpose. As introduced, this bill would likely divert assessment fees paid by state-chartered banks away from the State Banking Department and into the State General Fund, since assessment fees are not required by the constitution to be distributed to the State Banking Department. The Association has historically opposed efforts to divert bank assessment fees away from the State Banking Department. Several other agencies are similarly impacted, and the Association is working with them, as well as with the State Banking Department, to amend the legislation. There has been no activity on this bill for some time. The Association will continue to monitor this legislation.

House Bill 139 by Rep. K.L. Brown (R-Jacksonville) would require a lender that holds all or part of a payment for an insurance claim to, upon request by the insured for payment, either issue the payment or provide a detailed notice of why the payment is being withheld and the steps the insured needs to take for the payment to be released. As currently written, the lender would have 10 days to provide information to the insured or risk paying 20 percent interest on any insurance proceeds held by the lender. This legislation is allegedly in response to issues that arose in the aftermath of the tornadoes that impacted Jacksonville and the surrounding areas last May. The Association is in discussions with the sponsor and other interest groups, such as the Homebuilders Association of Alabama, about the legislation and hopes a compromise can be reached, especially with respect to the timelines and interest rate. The Association, working with the Homebuilders Association of Alabama, amended this bill to increase the notice period to 14 days, decrease the interest rate to 10 percent, and clarify that financial institutions retain all rights under current law and under agreements with homeowners, including the right to retain insurance proceeds when distributing them is economically unfeasible. This bill is now in position to be approved by the full Senate. The Association-backed amendment remains intact

House Bill 162 by Rep. Chris Blackshear (R-Phenix City) and Senate Bill 127 by Sen. Shay Shelnutt (R-Trussville) is the Future Advance Mortgage Protection Act. As introduced, the bill would make clear that future advance mortgages are created upon their execution and not, as the state Supreme Court has ruled, when funds are actually advanced. Discussions with the Homebuilders Association of Alabama resulted in additional language being added to the bill to provide clarity on the subject of lien priority for obligatory or optional future advances. An Alabama Supreme Court ruling from March 29 leaves banks in a better position than they would be in if these pieces of legislation became law, meaning these bills will likely not advance any further.

House Bill 304 by Rep. Merika Coleman (D-Birmingham) and Senate Bill 181 by Sen. Shay Shelnutt (R-Trussville) makes clear that certified real estate appraisers can perform a valuation for certain financial transactions involving real estate. While federal law allows valuations to be performed by anyone in certain situations, current state law provides that real estate appraisers can only perform appraisals, effectively eliminating professional real estate evaluators from the current valuations market. Coincidentally, the national Appraisers Standards Board updated the Uniform Standards of Professional Appraisal Practice on Friday, April 5, to allow appraisers to perform evaluations beginning January 1, 2020. House Bill 304 was passed by the Senate and sent to Governor Ivey’s desk on May 21. The bill awaits her signature as of this writing.

House Bill 419 by Rep. Kyle South (R-Fayette), the Financial Institution Excise Tax Reform Act, makes numerous technical changes to the Financial Institution Excise Tax statutes, many of which remain substantially unchanged since being enacted in 1935. The 33-page bill essentially does the following five things: (1) uses the federal definition of “taxable income” as the base calculation for the FIET; (2) repairs constitutional defects related to deductions allowed for subsidiary entities; (3) reduces administrative burdens on financial institutions filing consolidated returns; (4) changes the tax distribution formula from location-based to population-based; and (5) mirrors FIET and federal income tax filing dates and payment schedules. The bill was passed by the Senate and sent to Governor Ivey’s desk on May 21. It awaits her signature as of this writing.

House Bill 420 by Rep. Kyle South (R-Fayette) and Senate Bill 357 by Sen. Rodger Smitherman (D-Birmingham) allows financial institutions and the Department of Revenue to voluntarily enter into financial institution data match agreements. Under the agreements, the department will be able to limit the number of garnishment notices it sends to banks, essentially eliminating the bank’s receipt of a garnishment notice for a non-customer. House Bill 420 was passed by the Senate and sent to Governor Ivey’s desk on May 21. The bill awaits her signature as of this writing.

House Bill 424 by Rep. Joe Lovvorn (R-Auburn), the Alabama Innovation Act, provides a tax credit for research conducted in Alabama. Modeled after the federal research and development tax credit, the tax credit is available to Alabama businesses for qualified research expenses incurred by Alabama companies that spend funds and resources in-house or pay Alabama research companies to conduct qualified research for new or improved products or services. The combined amount of credits cannot exceed $25 million, or $2 million per taxpayer, in a single year. Credits can be issued against the state income tax or the Financial Institution Excise Tax. Approved research activities involve a variety of research and development avenues, including research types approved by the Alabama Department of Commerce. Note that any credits to offset FIET liability will be limited to the state portion of the tax only. The House Ways and Means Education Committee amended and favorably reported the bill on May 2. It is now in position to be considered by the full House.

House Bill 487 by Rep. Neal Rafferty (D-Birmingham) and Senate Bill 189 by Sen. Linda Coleman-Madison (D-Birmingham) increases the mortgage recording fee from $150 to $200 on every $100,000 of indebtedness. The legislation also changes how the fee revenue would be distributed by providing that a portion of the revenue would be allocated to the Housing Trust Fund, which the Legislature established (but never funded) in 2012 for the purpose of distributing housing grants throughout the state. The Alabama Association of Realtors, the Homebuilders Association of Alabama, and the Mortgage Bankers Association of Alabama, as well as this Association, stand in opposition to this legislation and will continue to work against its passage.

House Bill 534 by Rep. Steve McMillan (R-Bay Minette) makes several technical changes to laws related to land sold for unpaid taxes. These changes related to the improvement costs that could accrue, the amount of interest added to those charges, and the length of time available to redeem the property. The bill was carried over in committee. After discussions with several groups interested in this legislation, including ABA, the conversation surrounding this bill is likely to take place, at the earliest, in July.

House Bill 550 by Rep. Debbie Wood (R-Valley) and Senate Bill 343 by Sen. Tom Whatley (R-Auburn) makes several changes to laws related to the rights and remedies of a purchaser of real estate at a tax sale. Though this issue was studied by several groups over the last year, including the Alabama Law Institute, it appears that these bills are not a product of those groups’ work. The Association will study this legislation and determine its impact on the banking industry. Both bills have been carried over at the request of the sponsors.

Senate Bill 106 by Sen. Andrew Jones (R-Centre) would allow a member of any branch of the Armed Forces of the United States to contract with a financial institution to obtain a loan or open a checking or savings account. Generally speaking, current state law prohibits anyone under the age of 19 from entering into a contract, including a contract with a financial institution. A person may join the Armed Forces at age 17 with parental consent, or at age 18 or older without parental consent. This bill was amended on the Senate floor to, one, make clear that once a person signs a contract pursuant to this new law, that contract remains valid even if the person subsequently leaves the Armed Services, and two, to permit a financial institution to require a person signing a contract pursuant to this new law to present in person a valid form of military identification. Senate Bill 106 was signed into law on May 21.

As of the end of the twenty-fourth legislative day, legislators have introduced 1,068 bills – 641 in the House and 427 in the Senate – and 360 resolutions. So far, 225 of these measures have been enacted into law. The 2019 Regular Session can last for no more than 30 legislative days and must end on or before June 17.

The Legislature will reconvene for its 25th legislative day on May 28. Though nothing is finalized, there have been discussions of the session ending next Thursday or Friday.